Merchant Cash Advance (MCA) Cases

 Recognizing the pernicious nature of merchant cash advances, the Attorney General of New York brought a special proceeding against a group of MCA lenders, on the ground that the agreements were "fraudulent, usurious loans-in-disguise", and obtained a judgment for over $77,000,000 in the lower court.   The respondents appealed.   The Appellate Division, First Department, agreed with the lower court and with the AG on the substance of the case, but determined that the monetary award needed to be adjusted downwards in several respects, in  People v. Richmond Capital Group LLC , 246 A.D.3d 585 (1st Dep't February 19, 2026).   The Court held:  The subject agreements, although styled as MCAs, are properly characterized as loans subject to restrictions on usury.... Although the MCAs have mandatory reconciliation provisions, no reconciliation was performed in practice, even though it was supposed to be performed on a monthly basis, and daily payments were fixed an...

Interesting recent case in Supreme Court, Nassau County Monday Funding v. Black Friday Deals, 85 Misc. 3d 1286 (Sup. Ct. Nassau County May 2025) (Justice Christopher T. McGrath)    A recent case, Monday Funding v. Black Friday Deals, 85 Misc. 3d 1286 (Sup. Ct. Nassau County May 2025), decided by Justice Christopher T. McGrath, subjected the Merchant Cash Advance Agreement in question to a well reasoned, searching analysis. The Court went beyond the typical 3-point formula to look at the entire document. Many cases look at just 3 aspects of the agreement, an analysis which can often fall short of getting to the heart of the matter. The 3 features most often examined are (a) whether the term is finite or indefinite, (b) whether bankruptcy is a default, and (c) whether there is a reconciliation clause. These points neglect to take into account other important factors, such as, e.g., -whether the business failing or going out of business is a default triggering liability on the...

By Ray Beckerman    It has become a common commercial practice for “lenders” who wish to earn a return beyond the criminal usury rate to enter into contracts to purchase future receipts, commonly referred to as “merchant cash advance” (“MCA”) agreements, as alternatives to loan agreements. Under MCA agreements, the financing party is supposed to be a “purchaser” of future receipts rather than a lender, and the financed party is supposed to be a “seller” of its future receipts rather than a borrower. The basic arrangement is that the financer pays money to the merchant, and gets back a much larger sum of money paid out of future receipts, with these payments being electronically debited from the seller’s account. Additionally, a number of fees are debited as well. The difference between the amount the merchant gets, and the amount he repays, is usually well in excess what would be permitted under criminal usury law, which is probably the lender’s motivation for adopting th...